1 answer

Describe major sources of short term financing?

Question:

Describe major sources of short term financing?


Answers

Purpose of Short-term Finance After establishment of a business, funds are required to meet its day to day expenses. For example raw materials must be purchased at regular intervals, workers must be paid wages regularly, water and power charges have to be paid regularly. Thus there is a continuous necessity of liquid cash to be available for meeting these expenses. For financing such requirements short-term funds are needed. The availability of short-term funds is essential.

Inadequacy of short-term funds may even lead to closure of business.

1.Bank Credit

Commercial banks grant short-term finance to business firms which is known as bank credit. When bank credit is granted, the borrower gets a right to draw the amount of credit at one time or in instalments as and when needed. Bank credit may be granted by way of loans, cash credit, overdraft and discounted bills.

2.Trade Credit

Trade credit refers to credit granted to manufactures and traders by the suppliers of raw material, finished goods, components, etc. Usually business enterprises buy supplies on a 30 to 90 days credit. This means that the goods are delivered but payments are not made until the expiry of period of credit.

This type of credit does not make the funds available in cash but it facilitates purchases without making immediate payment. This is quite a popular source of finance.

3.Cash Credit

It is an arrangement whereby banks allow the borrower to withdraw money upto a specified limit. This limit is known as cash credit limit. Initially this limit is granted for one year. This limit can be extended after review for another year.

However, if the borrower still desires to continue the limit, it must be renewed after three years. Rate of interest varies depending upon the amount of limit. Banks ask for collateral security for the grant of cash credit. In this arrangement, the borrower can draw, repay and again draw the amount within the sanctioned limit. Interest is charged only on the amount actually withdrawn and not on the amount of entire limit

4.Overdraft

When a bank allows its depositors or account holders to withdraw money in excess of the balance in his account upto a specified limit, it is known as overdraft facility.

This limit is granted purely on the basis of credit-worthiness of the borrower.

.

Similar Solved Questions

3 answers
Find the mass of urea needed to prepare 49.5 of a solution in water in which the mole fraction...
Find the mass of urea needed to prepare 49.5 of a solution in water in which the mole fraction of urea is 7.51×10?2....
1 answer
You have calculated the following returns for an individual stock: Periods               Return Month 1            &nbs
You have calculated the following returns for an individual stock: Periods               Return Month 1                 4.09% Month 2  ...
1 answer
1 for good x2 5. Given the market prices p a consumer with U(x1, x2) income...
1 for good x2 5. Given the market prices p a consumer with U(x1, x2) income $300. Now the price of good x changes. Find the uncompensated and compensated demand for good x 2 for good xı and p2 4x152i maximizing her utility with her...
1 answer
Accounting
Question 4 a. Ahmad bought a new equipment at RM120,000 on 1 July 2017 . He was undecided whether to depreciate the equipment using straight line method or reducing method at \(20 \%\) per annum. The equipment is expected to have no residual value. You are required to calculate the amount of d...
1 answer
You throw a ball straight down from an apartment balcony to the ground below. The ball...
You throw a ball straight down from an apartment balcony to the ground below. The ball has an initial velocity of 5.35 m/s, directed downward, and it hits the ground 2.12 s after it is released. Find the height of the balcony....
1 answer
I need hepl plz Consider the circuit given below. 13 12 If/= 7 A, obtain the...
I need hepl plz Consider the circuit given below. 13 12 If/= 7 A, obtain the values for all the three mesh currents in the circuit. The value of the mesh current in is A. The value of the mesh current iz is The value of the mesh current iz is...
1 answer
List and describe the two types of assets a compny owns.
list and describe the two types of assets a compny owns....
1 answer
What is als? Assume that no heat is lost to the surroundings (Hint: The heat gained...
What is als? Assume that no heat is lost to the surroundings (Hint: The heat gained by the gold must be equal to the heat lost by the iron. The specific heats of the metals are given in Table 6.2.) To a sample of water at 23.4°C in a constant- 6.36 pressure calorimeter of negligible heat capacit...
1 answer
Lesson 3 Simultions 1. A small opinion poll. Suppose that 90% of a university's students favor...
Lesson 3 Simultions 1. A small opinion poll. Suppose that 90% of a university's students favor abolishing evening exams. You as 10 students chosen at random. What is the probability that all 10 favor abolishing evening exams? (a) Give a probability model for asking 10 students independently of e...
1 answer
A cylindrical rod (L = 0.1) (r=7.5mm) is fixed on a wall. A point c lies...
A cylindrical rod (L = 0.1) (r=7.5mm) is fixed on a wall. A point c lies on its radius an angle (theta =30 degrees) from the positive Z axis. 1) Find the state of stress of a cubic element at location c assuming its in plane stress. Transverse shear for the circular crossection can be assumed to be ...
1 answer
Ans questions: make sure to clearly identifes and defends position on the jurys decision Unit 2...
ans questions: make sure to clearly identifes and defends position on the jurys decision Unit 2 Issues in plu At a hospital in Washington State, a client with a recent leg partialy sedated after surgery. The nurse assigned to his caaputation from the room and failed to raise the bed rails. The cli...
1 answer
Question 20 The statement of cash flows shows the financial position of a firm at a...
Question 20 The statement of cash flows shows the financial position of a firm at a given point of time provides insight into a firm's operating, investment, and financing cash flows classifies a firm's cash flows as operating, investing, financing, and other activities summarizes all the pu...
1 answer
What is the relationship between real interest rat and inflation rate in the long run and...
What is the relationship between real interest rat and inflation rate in the long run and short run? explain with figure....
1 answer
Which of the set of quantum numbers below is NOT allowed?QXYZ n 4 567l0031 ml 0...
Which of the set of quantum numbers below is NOT allowed?QXYZ n 4 567l0031 ml 0 1 0 1 ms +12/ −12/ −12/ +12/ W h i c h o f t h e s e t o f q u a n t u m n u m b e r s b e l o w i s N O T a l l o w e d ? n l m l m s Q 4 0 0 + 1 2 X 5 0 1 - 1 2 Y 6 3 0 - 1 2 Z 7 1 1 + 1 2 Question options:...
1 answer
On January 1, 2018 Casey Corporation exchanged $3,218,000 cash for 100 percent of the outstanding voting...
On January 1, 2018 Casey Corporation exchanged $3,218,000 cash for 100 percent of the outstanding voting stock of Kennedy Corporation. Casey plans to maintain Kennedy as a wholly owned subsidiary with separate legal status and accounting information systems. At the acquisition date, Casey prepared t...
1 answer
On a hot summer day, the density of air at atmospheric pressure at 32.5°C is 1.2074...
On a hot summer day, the density of air at atmospheric pressure at 32.5°C is 1.2074 kg/m3. (a) What is the number of moles contained in 1.00 m3 of an ideal gas at this temperature and pressure? 35.0146 Your response differs from the correct answer by more than 10%. Double check your calculations...
1 answer
Select then t, and drag to the Favorites Bar folder. Or import from another browser. Import...
select then t, and drag to the Favorites Bar folder. Or import from another browser. Import favorites st: HW Normal Distribution ation of 100 and a standard deviation O of 15. Answer the following questi Suppose IQ scores are approximately normally distributed with a mean pts Not allowed. This test ...